A simple locally interactive model of ergodic and nonergodic growth

A simple locally interactive model of ergodic and nonergodic growth

A simple locally interactive model of ergodic and nonergodic growth

In this paper we propose a locally interactive model which explains both the cross sectional dynamics as well as the possibility of multiple long run equilibria. Firms can choose between two technologies say 1 and 0; the returns from technology 1 are affected by the number of neighboring firms using it; the returns from technology 0 are independent of neighboring firms technological choices. Durlauf (1993) explains nonergodic growth via strong technological complementarities. By modeling in a different way the transmission of the spillover effects, we show that in presence of technological complementarities of intermediate strength we have either two or infinitely many long run equilibria. The basin of attraction of these equilibria depend on the initial conditions. On the other hand when the technological complementarities are either very weak or very strong then we have a unique long run equilibrium. As for the dynamic behavior, we shall explain the formation of large connected areas, clusters. As the cluster size grows at a rate slower than t, such areas seem to be stationary along the dynamics.

Abstract

In this paper we propose a locally interactive model which explains both the cross sectional dynamics as well as the possibility of multiple long run equilibria. Firms can choose between two technologies say 1 and 0; the returns from technology 1 are affected by the number of neighboring firms using it; the returns from technology 0 are independent of neighboring firms technological choices. Durlauf (1993) explains nonergodic growth via strong technological complementarities. By modeling in a different way the transmission of the spillover effects, we show that in presence of technological complementarities of intermediate strength we have either two or infinitely many long run equilibria. The basin of attraction of these equilibria depend on the initial conditions. On the other hand when the technological complementarities are either very weak or very strong then we have a unique long run equilibrium. As for the dynamic behavior, we shall explain the formation of large connected areas, clusters. As the cluster size grows at a rate slower than t, such areas seem to be stationary along the dynamics.